Wells, UBS, OpCo Named in Scathing Report on Broker Misconduct

More than one in ten stockbrokers have a disciplinary mark on their public records, and several prominent broker-dealers including UBS Financial Services and Wells Fargo Advisors’ Financial Network (FiNet) appear to “specialize in misconduct,” according to a new study from business professors at the University of Minnesota and University of Chicago.

“It’s the first large-scale study that provides evidence documenting the extent of misconduct of financial advisors and advisory firms,” said Mark Egan, a University of Minnesota professor who was one of three principal authors of the report.

The high rate of disciplinary actions in the industry and the fact that 44% of financial advisors who are fired for misconduct find new jobs in the industry within a year could further fuel political and public reaction against the integrity of the securities industry. But it also draws some disturbing lines of differentiation among firms.

“Why are some firms willing to hire advisors who were fired following misconduct?” the study asks. “If firms had identical tolerance toward misconduct, such rehiring would not take place.”

The study zeroes in on the best and worst U.S. broker-dealers as measured by the percent of firm advisors with disciplinary actions on the Financial Industry Regulatory Authority’s BrokerCheck from 2001 through May 2015.

At the top of the list is Oppenheimer & Co., where almost 20 percent of advisors have been disciplined for misconduct. Following closely behind are FiNet, which is Wells Fargo’s independent brokerage channel, UBS Financial and Cetera Financial’s First Allied, according to the study. It found that disciplinary actions were taken against one out of every seven advisors at those firms.

By comparison, Goldman Sachs and Morgan Stanley evidenced very strong disciplinary cultures, with a ratio of less than one disciplinary action for every 100 advisors, the report said.

“Misconduct is too concentrated to be driven by random mistakes,” Egan said in a prepared statement. “Approximately one-third of advisers with misconduct records are repeat offenders. Past offenders are five times more likely to engage in misconduct than the average adviser.”

A spokeswoman at Wells Fargo Advisors declined to comment on the report. Spokespeople at UBS, Oppenheimer and Cetera did not immediately respond to a request for comment on the study.

In an interview, Egan said the strong showing for companies like Goldman and Morgan Stanley may be colored by the fact that their total number of registered advisers include traders and salespeople who deal with sophisticated institutional investors. Wells Fargo Securities, for example, is ranked the ninth cleanest.

The report also found that registered investment advisers, as opposed to brokers, “are more likely to be disciplined for misconduct but face less punishment at both industry and firm levels.”

Egan said, however, that the report’s authors have not systematically investigated the RIA market.